Monday, June 8, 2009

The Hummer Deal

On a clear day, you won’t see General Motors any more. At least the GM of yore. GM is being cut apart and fed to any meat eater in the vicinity. One titbit, Hummer, is going to an unexpected place.

Hummer, for the auto uninitiated, is a gas guzzling Sport Utility Vehicle, particularly loved by the Americans. It was very popular, but is no longer so – its global sales declined by 62% in Q1. A few days back it was announced that Hummer would be acquired by Sichuan Tengzhong, a Chinese company based in Chengdu.

This is not the most obvious of deals – lets put it that way. Why is an unknown Chinese company doing this acquisition ? The deal looks shaky for a number of reasons.

Firstly Sichuan Tengzhong makes highway and bridge structural components, construction machinery , energy equipment and yes – trucks carrying cement mixers. What has this got to do with American SUVs ? Where is the business fit ?

Secondly, Hummer is a gas guzzler on a steep decline. What will Tengzhong do with it. The CEO of Tengzhong says the deal "will allow Hummer to better meet demand for new products such as more fuel-efficient vehicles in the U.S." Really ? Where’s the strategic fit ?

Thirdly Tengzhong operates in China. Hummer is sold mostly in the US. Where’s the geographical fit ?

And finally, and most important of all, these two companies are literally, and figuratively, a world apart. I am willing to bet that few people in Hummer can point to Chengdu on a map. Equally few people in Tengzhong may be able to point to Detroit on a map. Where is the cultural fit ?

M&A is a difficult business. More acquisitions fail than succeed. This seems a particularly difficult one. Methinks the deal was done because of the “kick” it gave a Chinese company to get a famous American brand and business and because GM will sell anything to anybody provided he/she/it/whatever shows the cash. Difficult to see how this deal will succeed.

For the sake of the brand and the people associated with that business, I hope I am dead wrong.

PS – I am 100 not out today – this is my 100th post. I am a relative baby in blogging terms – having taken to it only a little while ago. To use the cricket analogy, there have been streaky shots galore, edges that have not carried, catches dropped but an occasional elegant cover drive for four. Sometimes rain has threatened to stop play, but somehow the clouds have always cleared . On the way, I have made lovely new friends – Aparna, Rads, Adesh, Zoobie, Le Embrouille Blogueur, Hang, Ajay, Mark, Kanmuri, Reva , Chris, ….. and cemented many old friends – Kiwibloke, Dada, Hassan, Aashish, Preeti ….. and the others who read and ping me but don’t comment. To all of you, a big heart felt Thank You , Xie Xie. I have been touched by your warmth and support. And like a good cricketer, I am taking guard again, head down and waiting to play the next ball.